Here is some insight from Bank for International Settlements (BIS) research that should interest commerce and industry minister Nirmala Sitharaman and fellow advocates of a lower rupee to support flagging exports: even as exports do get a boost from a lower rupee, the overall effect on economic growth could well be negative, because of the impact on company balance sheets. The greater the level of foreign debt of an economy, the higher the probability that economic growth would get a boost, rather than take a hit, from a rise in the country's exchange rate.The research, flagged by The Economist, December 15, is by two BIS economists, Jonathan Kearns and Nikhil Patel.

They examine the impact of exchange-rate changes on economic growth through the trade channel, which is what most exporters and the commerce ministry tend to be concerned with, and through the financial channel. They estimate the change in economic growth for one percentage change in the exchange rate -the exchanger ate elasticity of growth, in the jargon-using the conventional trade-weighted exchange rate and using a debt-weighted ex change rate, the latter to capture the effect on local asset prices and resulting change in foreign appetite for local assets as well as the effect on companies that have foreign loans on their books. As could be expected, the response of economic growth to a rise in the exchange rate is significant and negative in the case of the trade channel and positive in the case of the financial channel. In the case of Asian emerging markets, the sum of the negative and positive elasticities was still positive, meaning that for unit rise in the exchange rate, GDP grew, rather than declined.

This has an obvious and immediate bearing on India's monetary policy as well. India's external debt stood at 23% of GDP at the beginning of the current fiscal. Interest rate cuts tend to reduce the exchange rate, especially when the US Fed is tightening rates, and that might boost exports, but, on balance, hurt growth because of its financial effect. A restive pensioner population is not the only thing to worry about, while cutting rates.

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